Alcatel Darkens the Mood
The company disappointed investors today when it said it expects sales declines of 25 to 30 percent in the first quarter of 2003. This news overshadowed reports that the company had surpassed analysts' expectations for the fourth quarter (see Alcatel Closes 2002). Alcatel Chief Executive Serge Tchuruk just two weeks ago put a positive spin in preannouncing fourth-quarter expectations (see Alcatel Sees Sales Uptick), which spurred a mini-rally in the sector.
In January, Tchuruk attributed the expected fourth-quarter boon to a seasonal uptick in sales. He did hint that he expected 2003 to be a difficult year (see Alcatel Offers Tempered Optimism) -- but it looks to be even more difficult than some thought. The company blamed the coming shortfall on the fact that the company is now feeling the ripple effects of telecom spending cuts made in the middle of 2002.
Alcatel's predictions for the full year are not as gloomy. It expects sales to be off about 15 percent on average in 2003.
Alcatel also revealed during the conference call that it is considering selling or closing its optoelectronics business, following in the footsteps of other systems vendors such as Nortel Networks Corp. (NYSE/Toronto: NT) (see Bookham Buys Nortel's Components Biz).
Alcatel proposes to convert all of its O shares, which track the performance of Alcatel Optronics (Nasdaq: ALAO; Paris: CGO.PA), into A shares on a one-for-one basis. "What we see for this year [in terms of revenues] is approximately one fifteenth of what we planned when we launched the tracking stock," Tchuruk noted. To wit, the revenues for the Optronics division were €84.1 million (US$91.3 million) in 2002, compared to €470.4 million ($510.4 million) in 2001 (see Alcatel Optronics Closes 2002).
This move appears to be a complete about-face for Alcatel, which only last fall said it had no intention of selling its Optronics group (see Alcatel Optronics to be Slashed). Still, analysts had been expecting the move to come eventually. Systems vendors originally set up components divisions to supply their own needs, and right now, none are selling enough gear to support these captive divisions. Indeed, Alcatel is probably the only major systems vendor that hasn't yet divested its components activity.
But it wasn't all bad news. The company also reported fourth-quarter revenue of €4.51 billion (US$4.87 billion), down about 33 percent from a year ago. But it also reported an operating profit of €20 million ($21.6 million), better than the €11 million ($11.88 million) analysts had predicted.
Other companies, such as Lucent Technologies Inc. (NYSE: LU) and Nortel, have also recently predicted declines in the coming year. But they seemed to imply that a bottom will be reached in 2003.
Still, investors were not expecting such a bleak first-quarter outlook. As a result, Alcatel’s ADR trading on the NYSE has fallen $0.19 (2.71%) to $6.81.
Other stocks in the sector have also been hit. Lucent was down $0.081 (4.40%) to $1.79; Nortel was down $0.10 (4.13%) to $2.32; and Cisco Systems Inc. (Nasdaq: CSCO), which reports its earnings later today, was off $0.49 (3.64%) to $12.99.
— Marguerite Reardon, Senior Editor, and Pauline Rigby, Senior Editor, Light Reading